On Tuesday, EssilorLuxottica SA (EL:FP) (OTC: OTC:ESLOY) shares saw its rating shift from "Buy" to "Neutral" by UBS, despite an increase in the price target to EUR 248.00 from EUR 232.00. The firm recognized the positive outlook for the company, citing expected acceleration in top-line growth from the fourth quarter of 2024, fueled by innovation and mergers and acquisitions.
EssilorLuxottica's defensive market position and its beneficial exposure to the strengthening US dollar, which represents approximately 43% of its sales, were also highlighted as favorable factors.
Despite the optimistic view on the company's future, UBS noted that its estimates are now in line with the consensus, projecting a 6.3% growth in 2025. The stock's current trading price is near its all-time high, at approximately 29 times its forecasted FY25 earnings per share (P/E), after an impressive year-to-date increase of 27%, significantly outperforming the MSCI Europe (Textile Apparel and Luxury) index by 37%.
UBS expressed caution regarding some near-term risks that could affect EssilorLuxottica's performance. Potential US tariffs are a concern, with an estimated impact on earnings before interest and taxes (EBIT) of up to 12%. Moreover, shifts in broader consumption patterns could lead investment flows away from EssilorLuxottica to higher beta names if signs of increased spending emerge.
In light of these considerations, UBS has adjusted its earnings per share (EPS) estimates for EssilorLuxottica for the years 2024, 2025, and 2026, with a reduction of 3%, 1%, and 3% respectively. The firm's decision to downgrade the stock to "Neutral" reflects a more cautious stance in the short term, despite acknowledging the company's strong growth prospects and market position.
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